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Cover design: The Word Express Doing Business 2014 Czech Republic 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 37 Registering property .................................................................................................................. 44 Getting credit .............................................................................................................................. 52 Protecting investors ................................................................................................................... 59 Paying taxes ................................................................................................................................ 68 Trading across borders .............................................................................................................. 75 Enforcing contracts .................................................................................................................... 83 Resolving insolvency .................................................................................................................. 92 Employing workers .................................................................................................................... 97 Data notes ................................................................................................................................. 104 Resources on the Doing Business website ............................................................................ 110 Doing Business 2014 Czech Republic 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Czech Republic. To allow useful business regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2014, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2013 http://www.doingbusiness.org. Doing Business 2014 Czech Republic 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: OECD high income business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: High income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 10,514,810 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 18,130 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 75 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 68* investors, paying taxes, trading across borders, Change in rank: -7 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 66.46 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 65.7 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: 0.76 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 Czech Republic 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 Czech Republic 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Czech Republic and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Czech Republic 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Czech Republic ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Czech Republic 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Czech Republic come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Czech Republic 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Czech Republic United Kingdom DB2014 Slovak Republic DB2014 Best performer globally Czech Republic DB2014 Czech Republic DB2013 Germany DB2014 Hungary DB2014 Poland DB2014 Indicator Italy DB2014 DB2014 Starting a Business 146 140 111 59 90 116 108 28 New Zealand (1) (rank) Procedures (number) 9 9 9 4 6 4 7 6 New Zealand (1)* Time (days) 19.5 19.5 14.5 5.0 6.0 30.0 18.5 12.0 New Zealand (0.5) Cost (% of income per 8.2 8.2 4.7 8.6 14.2 14.3 1.5 0.3 Slovenia (0.0) capita) Paid-in Min. Capital (% 29.5 29.7 0.0 9.4 9.8 12.6 19.3 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 86 82 12 47 112 88 53 27 China (1) (rank) Hong Kong SAR, Procedures (number) 33 33 9 24 11 18 11 12 China (6) Time (days) 120.0 120.0 97.0 79.0 233.5 161.0 286.0 88.0 Singapore (26.0) Doing Business 2014 Czech Republic 11 United Kingdom DB2014 Slovak Republic DB2014 Best performer globally Czech Republic DB2014 Czech Republic DB2013 Germany DB2014 Hungary DB2014 Poland DB2014 Indicator Italy DB2014 DB2014 Cost (% of income per 10.5 10.5 46.7 9.2 186.4 10.6 6.6 66.0 Qatar (1.1) capita) Getting Electricity 146 145 3 112 89 137 65 74 Iceland (1) (rank) Procedures (number) 6 6 3 5 5 6 5 5 10 Economies (3)* Time (days) 279 279 17 252 124 161 158 126 Germany (17) Cost (% of income per 179.0 180.0 46.9 116.4 215.9 205.2 10.6 91.9 Japan (0.0) capita) Registering Property 37 28 81 45 34 54 11 68 Georgia (1) (rank) Procedures (number) 3 3 5 4 4 6 3 6 4 Economies (1)* Time (days) 24.0 24.0 40.0 16.5 16.0 35.0 16.5 21.5 New Zealand (1.0)* Cost (% of property 4.0 3.0 5.7 5.0 4.4 0.4 0.0 4.7 5 Economies (0.0)* value) Getting Credit (rank) 55 52 28 55 109 3 42 1 Malaysia (1)* Strength of legal rights 6 6 7 7 3 9 8 10 10 Economies (10)* index (0-10) Depth of credit 5 5 6 4 5 6 4 6 31 Economies (6)* information index (0-6) Public registry coverage 6.4 6.1 0.0 0.0 25.6 0.0 2.7 0.0 Portugal (100.0)* (% of adults) Private bureau 76.0 74.2 100.0 73.2 100.0 82.8 61.6 100.0 22 Economies (100.0)* coverage (% of adults) Protecting Investors 98 95 98 128 52 52 115 10 New Zealand (1) (rank) Extent of disclosure 2 2 5 2 7 7 3 10 10 Economies (10)* Doing Business 2014 Czech Republic 12 United Kingdom DB2014 Slovak Republic DB2014 Best performer globally Czech Republic DB2014 Czech Republic DB2013 Germany DB2014 Hungary DB2014 Poland DB2014 Indicator Italy DB2014 DB2014 index (0-10) Extent of director 5 5 5 4 4 2 4 7 Cambodia (10) liability index (0-10) Ease of shareholder 8 8 5 7 7 9 7 7 3 Economies (10)* suits index (0-10) Strength of investor 5.0 5.0 5.0 4.3 6.0 6.0 4.7 8.0 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 122 119 89 124 138 113 102 14 (1) Payments (number per Hong Kong SAR, 8 8 9 12 15 18 20 8 year) China (3)* United Arab Emirates Time (hours per year) 413 413 218 277 269 286 207 110 (12) Trading Across Borders 68 71 14 70 56 49 108 16 Singapore (1) (rank) Documents to export 4 4 4 6 3 5 7 4 Ireland (2)* (number) Time to export (days) 17 17 9 17 19 17 17 8 5 Economies (6)* Cost to export (US$ per 1,215 1,205 905 885 1,195 1,050 1,500 1,005 Malaysia (450) container) Documents to import 6 6 4 6 3 4 6 4 Ireland (2)* (number) Time to import (days) 17 17 7 19 18 14 16 6 Singapore (4) Cost to import (US$ per 1,190 1,180 940 845 1,145 1,025 1,480 1,050 Singapore (440) container) Enforcing Contracts 75 75 5 15 103 55 65 56 Luxembourg (1) (rank) Doing Business 2014 Czech Republic 13 United Kingdom DB2014 Slovak Republic DB2014 Best performer globally Czech Republic DB2014 Czech Republic DB2013 Germany DB2014 Hungary DB2014 Poland DB2014 Indicator Italy DB2014 DB2014 Time (days) 611 611 394 395 1,185 685 545 437 Singapore (150) Cost (% of claim) 33.0 33.0 14.4 15.0 23.1 19.0 30.0 39.9 Bhutan (0.1) Procedures (number) 27 27 30 35 37 33 32 28 Singapore (21)* Resolving Insolvency 29 35 13 70 33 37 38 7 Japan (1) (rank) Time (years) 2.1 3.2 1.2 2.0 1.8 3.0 4.0 1.0 Ireland (0.4) Cost (% of estate) 17 17 8 15 22 15 18 6 Norway (1) Outcome (0 as piecemeal sale and 1 as 1 1 1 0 1 1 1 1 going concern) Recovery rate (cents on 65.0 56.3 82.9 38.3 62.7 54.8 54.1 88.6 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Czech Republic 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Czech Republic 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Czech procedures, takes 19.5 days, costs 8.2% of income per Republic? According to data collected by Doing capita and requires paid-in minimum capital of 29.5% Business, starting a business there requires 9 of income per capita (figure 2.1). Figure 2.1 What it takes to start a business in Czech Republic Paid-in minimum capital (% of income per capita): 29.5 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Czech Republic 16 STARTING A BUSINESS Globally, Czech Republic stands at 146 in the ranking and the regional average ranking provide other useful of 189 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in Czech Republic to start a business. Figure 2.2 How Czech Republic and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Czech Republic 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Czech Republic is keeping up—and minimum capital required to start a business (figure where it is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Czech Republic 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Czech Republic 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Czech Republic (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Czech Republic made starting a business easier—or not? By Doing Business report year DB year Reform A Project Czech Point where multiple registration-related DB2009 documents could be obtained at one place was created reducing the number of procedures and days. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Czech Republic is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Prague firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Spolecnost s Rucenim Omezenym professionals and the study of laws, regulations and (SRO) publicly available information on business entry in Paid in Minimum Capital Requirement: CZK that economy. Following is a detailed summary of 100,000 those procedures, along with the associated time and cost. These procedures are those that apply to Start-up Capital: 10 times GNI per capita a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Czech Republic—and the time and cost Time to No. Procedure Cost to complete complete Check for uniqueness of company's name The uniqueness of the company name can be verified by accessing a Less than one day 1 database on the Ministry of Justice's Web site (www.justice.cz) no charge (online procedure) Procedure can be done online Obtain extracts of criminal record and real estate at Czechpoint Offices Real estate extract can be obtained from so-called Czechpoints, which are usually located at the post offices, municipal and district offices. 1 day CZK 200 2 Since 2013, it is possible to obtain necessary documents online with a hard copy delivery, but only for companies with an address in the Czech Republic. Notarize articles of association Fees to notarize the articles of association depend on the amount of the company’s registered capital and on the number of copies of the notarial record required by the company's founders. The minimum fee is about CZK 4,000, and the maximum is about CZK 113,000, including 1 day CZK 20,540 3 21% VAT. The notary public is responsible for the compliance of the contents of the company’s articles of association with Czech law. The notary prepares the articles of association according to the founders' requirements. Certain notaries public require the following documents before executing the articles of association: Doing Business 2014 Czech Republic 21 Time to No. Procedure Cost to complete complete - An affidavit from the company managers. - Confirmation from the owner of premises where the seat will be located that the company is entitled to have its seat on those premises, along with an extract for the premises from the Real Estate Register. The founders must comply with the requirements stipulated by the Czech Commercial Code. They must confirm their compliance in an affidavit submitted to the City Court. Since January 2012, it is no longer required to submit the founders' signatures to the City Court. According to Section 47 of the Act 253/2004 Coll, the VAT has slightly increased from 20% to 21%. Obtain confirmation of the administrator of the capital contribution of the company, along with the confirmation of the bank that the capital contribution is held in the company’s special bank account Until the company is registered, the registered capital is usually blocked 2 days no charge 4 in the special bank account. Opening a special bank account usually costs about CZK 5,000. However, some banks open special accounts for nothing on condition that the company will open a bank account after its incorporation. Register with the Trade Licensing Office and obtain extract of the trade license The company has to register its business activities with the Trade License Office to be able to obtain an extract of its trade license. The required documents are as follows: (i) memorandum of association if the company has been founded but not yet established (i.e. registered with the Commercial Register); if the company has already been registered with the Commercial Register, an excerpt thereof that cannot be older than 3 months will be required; (ii) proof of legal use of premises (i.e. a notarized copy of the (sub)lease agreement or the excerpt of the Real Estate Cadastre); and 5 (iii) proof of payment of the administrative fee 5 days CZK 1000 The Trade License Office must complete the registration process within 5 days from the day when all required documents were submitted. After the completion of the registration process, the Trade License Office issues the excerpt of the trade license register which must be delivered to the applicant, either picked-up personally by the applicant at the Trade License Office or delivered by mail. The first issue of the trade license is free of charge. It is also possible to file the application online; however, the applicant must have a certified signature, otherwise such application will not be considered effective. Doing Business 2014 Czech Republic 22 Time to No. Procedure Cost to complete complete Register in the Business Registry of the Regional Commercial Court The Czech Commercial Code and the Czech Civil Procedure Act were amended to comply with European Community law (effective July 1, 2005) and to simplify and speed up registering in the Commercial Register. The amendment introduced standard forms for applications, reduced the number of participants to the proceedings, introduced a simplified procedure for registration (by entering the data without substantive review for certain types of entries), stated the exact time limits for decisions and their issuance and entries, introduced the "silence-is-consent" rule, and set limits for implementing the full electronic administration of the Commercial Register. Since July 1, 2006, the time limit for the court to decide on registration is 5 working days. To register a newly founded company in the Commercial Register, an application must be submitted to the relevant court administering the register. This application must be completed on a standard form and CZK 6,000 (paid in signed by all first directors of the company (or their proxy, if applicable) 7 days the form of court 6 before a notary. stamps) The following documents must be enclosed with the application for company registration in the Commercial Register: (a) the company’s articles (memorandum) of association in the form of a notary deed; (b) documents proving the company's title to the premises in which its seat is located (as described in Procedure 3); (c) a confirmation from the administrator of the contributions into the company's registered capital confirming that each founder paid up at least 30% of his or her monetary capital contribution and that the total paid up capital contribution are at least CZK 100,000; (d) a confirmation from the relevant bank that the capital contributions are held in the company's special bank account for the registered capital; (e) documents on the company managers/executive. Register for taxes According to the new resolution on January 1, 2013, the deadlines for registering with the Tax Office changed: - Income tax and general registration: 30 days from the registration of the Company by the Commercial Register. - Withholding tax and payroll tax registration: 8 days. 1 day no charge 7 - For the VAT obligatory registration: on January 1, 2010 amendment No. 362/2009 to the Act on VAT took effect. From this date the company is obliged to submit its VAT registration form within 15 days following the end of month in which the conditions are met or in certain cases within 15 days following the date when the company automatically becomes a VAT payer. - For the VAT voluntary registration: submit the registration at any time. Doing Business 2014 Czech Republic 23 Time to No. Procedure Cost to complete complete Upon submitting the application for income tax registration, the company receives a tax identification number (same number as for the VAT and the income tax). * Register for social security The company must register within 8 days as of the date when the first 1 day employee enters into work (the employee's and employer's registration (simultaneous with 8 no charge are in practice be made at the same time). An 8-day notification previous deadline applies in case of certain changes occur. procedure) * Register for health insurance 1 day (simultaneous with 9 The same rules apply as for social security registration. no charge previous procedure) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Czech Republic 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Czech Republic 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 33 procedures, build a warehouse in Czech Republic? According to takes 120.0 days and costs 10.5% of income per capita data collected by Doing Business, dealing with (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in Czech Republic Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Czech Republic 26 DEALING WITH CONSTRUCTION PERMITS Globally, Czech Republic stands at 86 in the ranking of ranking provide other useful information for assessing 189 economies on the ease of dealing with how easy it is for an entrepreneur in Czech Republic to construction permits (figure 3.2). The rankings for legally build a warehouse. comparator economies and the regional average Figure 3.2 How Czech Republic and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Czech Republic 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Czech Republic is keeping deal with construction permits (figure 3.3) help show up—and where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Czech Republic 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Czech Republic 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Czech Republic (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Czech Republic made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Czech Republic streamlined the construction permitting DB2010 process by reducing internal processing time for registering new plots. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Czech Republic BUILDING A WAREHOUSE are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business City : Prague through information collected from experts in construction licensing, including architects, civil Estimated engineers, construction lawyers, construction firms, CZK 13,006,000 Warehouse Value : utility service providers and public officials who deal with building regulations. These procedures The procedures, along with the associated time and are those that apply to a company and structure cost, are summarized below. matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Czech Republic —and the time and cost Time to No. Procedure Cost to complete complete Obtain project clearance from health authority in the municipality of Prague 1 The health authority clearance is based on the preliminary project 30 days no charge design drawings. * Obtain project clearance from environmental protection agency in the municipality of Prague The environmental protection agency clearance is based on preliminary 30 days no charge 2 project design drawings. There is a statutory time limit of 30 days. Time varies from office to office. * Obtain project clearance from local provider of water and sewerage services 3 The water and sewerage provider clearance is based on the preliminary 30 days no charge project design drawings. * Obtain project clearance from local electricity provider "Prazska energeticka, a.s." 4 The local electricity provider clearance is based on the preliminary 30 days no charge project design drawings. Doing Business 2014 Czech Republic 31 Time to No. Procedure Cost to complete complete * Obtain project clearance from local telecommunications provider Telefonica O2 The local telecommunications provider clearance is based on the 5 preliminary project design drawings. Clearance is required from all 30 days no charge three telecom providers, according to Act No. 127/2005 Coll., on Electronic Communications (effective May 1, 2005). * Obtain project clearance from local telecommunications provider Radiokomunikace This clearance is based on the preliminary project design drawings. 6 Clearance is required from all three telecom providers, according to Act 30 days no charge No. 127/2005 Coll., on Electronic Communications, effective May 1, 2005. * Obtain project clearance from local telecommunications provider UPC Direct This clearance is based on the preliminary project design drawings. 7 Clearance is required from all three telecom providers. This set by the 30 days no charge Act No. 127/2005 Coll., on Electronic Communications, effective as of May 1, 2005. * Obtain project clearance from local trade license authority This clearance is based on preliminary project design drawings made by an authorized designer. This procedure is needed only if the warehouse is used for conducting business, which is assumed. This clearance is based on a mere notification duty towards the competent trade office (in advance of opening of a new establishment). Where a trade license is applied for the exercise of a business activity in a new warehouse, the notification of a new warehouse as a new 30 days no charge 8 establishment is included in the application for the new trade license. Usually, trade office inspectors come to visit (inspect) a new establishment after its opening to check its compliance with the applicable trade laws (Act No. 455/1991 Coll., the Trade Act), especially where it is supposed to provide services to the public. The applicant itself is liable to ensure compliance with the applicable construction rules (the Building Code). * Obtain project clearance from road management agency This clearance is based on drawings from the preliminary project design. The statutory time limit for completing this procedure is 30 9 days. The fee for obtaining a decision to connect the site to a first-class 20 days CZK 500 road is CZK 1,000.00. The fee for obtaining a decision to connect the site to a second- and third-class road or to a local road is CZK 500.00. Doing Business 2014 Czech Republic 32 Time to No. Procedure Cost to complete complete * Obtain project clearance from fire department The fire department clearance is based on preliminary project design 10 drawings. The statutory time limit for completing this procedure is 30 10 days no charge days. * Obtain project clearance from local street lighting provider The local street-lighting provider’s clearance is based on preliminary project design drawings. Street lighting forms are considered part of 11 road connection (see Procedure 7). 20 days no charge Obtain location (zoning) permit A location permit grants only the right to build the warehouse on a plot; it does not authorize construction. To be issued by the municipal authority, the drawings for the preliminary project design need clearance from various agencies. Proof of ownership of the land is also requested by the building authority. The location permit is valid for 2 years, and it is a prerequisite for construction and building permits. The statutory period for completing the procedure is 30 days. However, in more complicated cases that require oral proceedings or local investigations, the statutory period is 60 days. In practice, it usually takes a week longer than the law prescribes. 37 days CZK 1,000 12 To site a structure, the location permit (or location approval) must be issued for simple structures, installations, and maintenance. However, if a regulatory plan (a more specific document then the master plan) is issued for the area (location), this plan replaces the location permit within that area. The regulatory plan is procured and issued by the local authority. It determines the detailed conditions for the use of the grounds, for the location and spatial arrangement of structures, for the protection of area’s values and character, and for creating a favorable environment. * Obtain building permit The company must submit to the municipal authority the documents specified in the preceding procedures, project design drawings made by an authorized designer, and additional documents requested by the building authority. The building permit is valid for 2 years. Under the new Building Act (2006), the land planning and the building permit applications can now be submitted simultaneously. Under the new 37 days CZK 3,000 13 code, the investor may apply for both the land planning permit and the building permit applications, simultaneously, on condition that the regulatory plan for the area was approved. The regulatory plan is procured and issued by the local authority and determines the detailed conditions for the use of the grounds, for the structural location and spatial arrangement, for protection of the area’s values and character, and for creating a favorable environment. Doing Business 2014 Czech Republic 33 Time to No. Procedure Cost to complete complete Most local authorities in the Prague area have already approved a regulatory plan. Thus, in practice, the planning and building permit applications can now be submitted simultaneously. As stated in the Czech Building Act (No. 183/2006, Coll. Section 78), pursuant to the rules of administrative procedure, the building office may merge the planning permission proceedings with the building permit proceedings, if the conditions within the area are clear, especially if there is an approved regulatory plan for the area. * Obtain technical conditions from fire department Technical conditions are based on project design drawings made by an authorized designer. The statutory period for completing the procedure 14 is 30 days (Act. No. 500/2004 Coll., Code of Administrative Procedure, 37 days no charge and Act No. 183/2006 Coll., Building Act). In practice, it usually takes a week longer than the law prescribes. * Obtain technical conditions from health authority of the Municipality of Prague 15 This clearance is based on project design drawings made by an 30 days no charge authorized designer. * Obtain technical conditions from road management agency of the Municipality of Prague 16 Technical conditions are based on project design drawings made by an 30 days no charge authorized designer. * Obtain technical conditions from environmental protection agency of the Municipality of Prague 17 Technical conditions are based on project design drawings made by an 30 days no charge authorized designer. * Obtain technical conditions from local provider of water and sewerage services of the Municipality of Prague Technical conditions are based on project design drawings made by an 18 authorized designer. There is no statutory period for completion of the 30 days no charge procedure. However, the service providers usually complete the procedure in 30 days. * Obtain technical conditions from local street lighting provider 19 Technical conditions are based on project design drawings made by an 30 days no charge authorized designer. There is no statutory period for completion of the procedure. However, the service providers usually complete the Doing Business 2014 Czech Republic 34 Time to No. Procedure Cost to complete complete procedure in 30 days. * Obtain technical conditions from local electricity provider Technical conditions are based on project design drawings made by an 20 days no charge 20 authorized designer. * Obtain technical conditions from local telecommunications provider Telefonica O2 21 Technical conditions are based on project design drawings made by an 10 days no charge authorized designer. * Obtain technical conditions from local telecommunications provider Radiokomunikace 22 Technical conditions are based on project design drawings made by an 10 days no charge authorized designer. * Obtain technical conditions from local telecommunications provider UPC Direct 23 Technical conditions are based on project design drawings made by an 10 days no charge authorized designer. * Request and receive water and sewerage connection with "Prazske vodovody a kanalizace" The request is made to the local water and sewerage provider. The costs for establishing a (completely new) water connection is about CZK 2,500.00 – CZK 3,000.00 per sq. m. for the excavation works (depending on the surface material), plus the cost of the actual placing of the new water conduct and coverage of the hole, (together, about CZK 4,500.00 per sq. m.). The costs of establishing a new sewerage connection are based on the same criteria, and they can vary substantially, based on the relevant circumstances (surface material, depth). The costs for 24 establishing the new water connection depends on the time and the 30 days CZK 5,500 number of workers needed. The price is about CZK 2,200.00 plus VAT (19%), calculated on an hourly basis for two workers. It is assumed this would take 5 -- 6 hours. For the excavation work, a company is responsible for being in contractual relation with the Prague Water Supply and Sewerage Company (Prazske vodovody a kanalizace). The fee for the water and sewerage connection varies, by service provider. However, the approximate cost is about CZK 1,200.00. The cost stated above probably includes the cost for constructing the water and sewerage connection. However, when constructing a warehouse, the constructor Doing Business 2014 Czech Republic 35 Time to No. Procedure Cost to complete complete also builds a water and sewerage connection. * Request a geodesic plan of the construction alignment This plan is performed by an authorized engineer/geodesist. The plan is 30 days CZK 15,000 25 a prerequisite for issuance of an occupancy permit. * Request and receive inspection of lightning conductor This inspection is performed by an authorized inspection technician. This procedure is a prerequisite for the issuance of an occupancy 1 day CZK 2,000 26 permit. It takes about 30 days from the inspection request for the inspector to come to the construction site. * Receive inspection of chimneys If the warehouse has heating, a chimney inspection must be performed before applying for an occupancy permit. A private company is 1 day CZK 5,000 27 authorized to do the inspection. From the time of inspection request, it takes about 7 days for the inspector to visit the construction site. * Request and receive telephone connection This procedure is a prerequisite for occupancy permit issuance. The 28 phone connection setup fee is CZK 499.00 (with a 1-year binding 14 days CZK 2,990 contract) or CZK 2,990.00 (without the fixed term condition). Notify building office of occupancy and request final inspection Under the new Building Act (No. 183/2006 Coll.), effective January 1, 2007, the traditional occupancy permit issued in the past by the building office no longer exists. Now, the vast majority of buildings can be used on the basis of a simple occupancy notification, indicating that the investor intends to start occupying it. The notification must be given, at the latest, 30 days before the day the building is planned to be 29 used. If the building office does not prohibit its use within 30 days of 1 day no charge the investor's notification (meaning that it does not conclude that the construction puts the public at risk), the investor may start using the building. Buildings used by the public would require an occupancy approval. In the case considered here, because the warehouse will be used for general storage activities, an occupancy approval is not needed. Doing Business 2014 Czech Republic 36 Time to No. Procedure Cost to complete complete Receive final inspection from special commission of the municipal authority 30 1 day no charge Receive fire department inspection 31 1 day no charge Request and obtain evidence number of the building from Municipality Before registration with the Real Estate Registry the owner of the building shall apply for the evidence No. of the building with the Municipality Office. The following documents need to be enclosed to 32 the application: occupancy or building permit, geometrical plan (i.e. 7 days no charge document on the building’s location according to which the building is to be newly registered in the Real Estate Registry), and the evidence on the ownership of the building. According to the law the document must be issued in 30 days, however in practice it takes 2 -- 3 weeks overage. Register the building with the real estate registry The company should apply to register the building and obtain a building identification number with the Cadastral Land Register. This procedure is necessary, among other conditions, if the building needs insurance, as for a new warehouse. 33 30 days CZK 500 Under Act. No. 500/2004 Coll. Code of Administrative Procedures, statutory time limits of 30 days have been introduced (60 days for complicated cases).In practice, it usually takes a week longer than the law prescribes. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Czech Republic 37 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Czech Republic 38 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 6 procedures, takes 279 days and costs connection in Czech Republic? According to data 179.0% of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in Czech Republic Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Czech Republic 39 GETTING ELECTRICITY Globally, Czech Republic stands at 146 in the ranking perspective in assessing how easy it is for an of 189 economies on the ease of getting electricity entrepreneur in Czech Republic to connect a (figure 4.2). The rankings for comparator economies warehouse to electricity. and the regional average ranking provide another Figure 4.2 How Czech Republic and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Czech Republic 40 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Czech Republic Best performer in Czech Republic Czech Republic Best performer Indicator OECD high income DB2014 DB2013 globally DB2014 DB2014 Rank 146 145 Iceland (1) Iceland (1) Procedures (number) 6 6 4 Economies* (3) 10 Economies* (3) Time (days) 279 279 Germany (17) Germany (17) Cost (% of income per capita) 179.0 180.0 Japan (0.0) Japan (0.0) Note: DB2013 rankings shown are not last year’s published rankings b ut comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Czech Republic 41 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Czech Republic (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Czech Republic made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Czech Republic 42 GETTING ELECTRICITY What are the details? The indicators reported here for Czech Republic are OBTAINING AN ELECTRICITY CONNECTION based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Prague utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: (PRE) / PREdistribuce a.s. verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Czech Republic—and the time and cost Time to No. Procedure Cost to complete complete Submit an application to PreDistribuce and await technical conditions/plan/study The customer submits in person to Predistribuce a letter where he states the location of the warehouse, required load, type of consumption (electric heating, air conditioning, etc.) and a map of the location of the 1 specified resolution. 20 calendar days no charge The utility responds to the application by providing a map/drawing of the proposed connection of the building to the PreDistribuce network. There is no external inspection for the preparation of the technical plan. Conclude a connection contract with Predistribuce and await approval of the connection Before the customer can conclude the connection contract with Predistribuce he has to receive the so called "1st level" permissions for general architectural project of the warehouse and electricity, gas and water connections at various building organizations and municipalities. 180 calendar days CZK 106,000.0 2 In the connection contract Predistribuce specifies its and the customer's responsibilities in the implementation of the connection works. After the connection contract is signed Predistribuce obtains for the customer the so called "2nd level permissions" at various organizations/municipalities. The "2nd level" permissions concern only the electrical connection. Before the connection works can start the applicant has to pay the connection fee. Doing Business 2014 Czech Republic 43 Time to No. Procedure Cost to complete complete Await completion of the external connection works by private electrical contractor and Predistribuce After the "2nd level permissions" are issued the private electrical contractor and in some cases Predistribuce complete the external 60 calendar days CZK 500,000.0 3 connection works. Await and obtain an external inspection of the electrical contractor’s works by Predistribuce 4 After the electrical subcontractor finishes his part of the works the utility 7 calendar days no charge inspects the completed works. Conclude a supply contract with PREdistribuce+PRE After the inspection of the completed by the subcontractor works Predistribuce sends an approval by email to the department in charge of 10 calendar days no charge 5 turning on the electricity and concluding a supply contract. At this point the customer can conclude a supply contract. Await installation of a meter by PREdistribuce+PREmereni and electricity starts flowing 6 After the supply contract is concluded Predistribuce will install the meter 2 calendar days no charge and turn on the power. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Czech Republic 44 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Czech Republic 45 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 24.0 days and costs 4.0% of the Czech Republic? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 3 Figure 5.1 What it takes to register property in Czech Republic Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Czech Republic 46 REGISTERING PROPERTY Globally, Czech Republic stands at 37 in the ranking of and the regional average ranking provide other useful 189 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies entrepreneur in Czech Republic to transfer property. Figure 5.2 How Czech Republic and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Czech Republic 47 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Czech Republic is keeping up—and where it is complete a property transfer (figure 5.3) help show falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Czech Republic 48 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Czech Republic 49 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Czech Republic (table 5.1)? Table 5.1 How has Czech Republic made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. The Czech Republic eased the process of property registration DB2010 with an ongoing effort at re-organization at the Registry combined with computerization. DB2011 No reform as measured by Doing Business. The Czech Republic speeded up property registration by DB2012 computerizing its cadastral office, digitizing all its data and introducing electronic communications with notaries. The Czech Republic made registering property easier by allowing the cadastral office online access to the commercial DB2013 registry’s database and thus eliminating the need to obtain a paper certificate from the registry before applying for registration at the cadastre. The Czech Republic made transferring property more costly by DB2014 increasing the property transfer tax rate. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 50 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: Prague lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: CZK 16,927,802 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Czech Republic—and the time and cost Time to No. Procedure Cost to complete complete A notary certifies the signatures of the transfer agreement By law, the transfer agreement does not have to be executed in the form of notarial deed and the signatures of the contractual parties on the transfer agreement do not need to be certified. However, the Cadastral Office must verify (as specified by law) the identity of the parties and CZK 30 each 1 manifestation of their will. Therefore, it is useful and common practice to 1 day signature (2 have signatures certified by the notary public or by the attorney or by signatures) public authorities. Notarization (by a notary public) is the most common way. The notarization takes place without delay and costs CZK 30 per each signature + 21% VAT (not included in total cost). Apply for the registration at the Cadastral Office Parties apply for registration at the Cadastral Office of Prague (Registry) after gathering all the documentation. There is a lump sum fee payable together with the application to register the property in the amount of CZK 1000, which is paid by buying stamps at the Registry. After the application is received, the adjudication procedure will take about 60 days as specified by law. In practice, it takes about 22 days in Prague. CZK 1000 2 22 days When the procedure is over, a notification of the transfer of ownership is (Registration Fee) issued. The Registry delivers the transfer agreements to the parties with a remark on the transfer agreement. The documentation requirements are as follow: (i) Transfer agreement in a number of counterparts that equals the number of parties plus two counterparts (originals or certified copies), in this case 4 counterparts (signatures certified in Procedure 1) (ii) If the transfer agreement was not signed by the persons authorized Doing Business 2014 Czech Republic 51 Time to No. Procedure Cost to complete complete by law to act on behalf of the companies, powers of attorneys with certified signatures shall be attached. (iii) If the application is filed by proxy, power of attorney shall be attached. The Cadastral Office obtains extracts from commercial registries online via Czech POINT system (www.czechpoint.cz) free of charge. Pay the real estate transfer tax The Real Estate Transfer Tax must be paid to the tax authority within 3 months following the month of the registration. The Cadastre is responsible for informing the tax authority about the transfer so that they record it and can collect the tax. Registration of the transfer is not 4% of the property 3 conditional upon payment of the tax. 1 day price (Real Estate The tax rate is 4 % of the higher of the purchase price and the value (as Transfer Tax) estimated by an expert to be paid by the parties to the transfer agreement). The Transfer Tax can be paid at the Tax authority, at a commercial bank, or even online. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Czech Republic 52 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Czech Republic 53 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Czech Republic stands at 55 in the ranking of collateral and bankruptcy laws in Czech Republic 189 economies on the ease of getting credit (figure facilitate access to credit? The economy has a score of 6.1). The rankings for comparator economies and the 5 on the depth of credit information index and a score regional average ranking provide other useful of 6 on the strength of legal rights index (see the information for assessing how well regulations and summary of scoring at the end of this chapter for institutions in Czech Republic support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How Czech Republic and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Czech Republic 54 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Czech Republic support lending That can help identify where the potential for and borrowing today, data over time can help show improvement is greatest. Table 6.1 The ease of getting credit in Czech Republic over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 52 55 Strength of legal rights 7 7 7 7 6 6 6 6 6 6 index (0-10) Depth of credit 4 5 5 5 5 5 5 5 5 5 information index (0-6) Public registry coverage 2.1 2.8 3.5 4.2 4.6 4.9 4.9 6.1 6.1 6.4 (% of adults) Private bureau 24.9 37.9 51.0 53.0 65.2 73.1 73.2 95.7 74.2 76.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Czech Republic 55 GETTING CREDIT One way to put an economy’s score on the getting 2013 and shows the number of economies with this credit indicators into context is to see where the score in 2013 as well as the regional average score. economy stands in the distribution of scores across Figure 6.3 shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Czech Republic in Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Czech Republic 56 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Czech Republic (table 6.2)? Table 6.2 How has Czech Republic made getting credit easier—or not? By Doing Business report year DB year Reform Czech Republic made access to finance more difficult by DB2009 decreasing secured creditors' rights during reorganization procedure. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 57 GETTING CREDIT What are the details? The getting credit indicators reported here for Czech The data on the legal rights of borrowers and lenders Republic are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a credit well as public sources of information on collateral and registry and/or credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in credit registry or credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in Czech Republic OECD high income OECD high income Indicator Czech Republic average average Strength of legal rights index (0-10) 6 7 Depth of credit information index (0-6) 5 5 Public registry coverage (% of adults) 6.4 42.9 Private bureau coverage (% of adults) 76.0 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 6 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Doing Business 2014 Czech Republic 58 Strength of legal rights index (0–10) Index score: 6 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured No creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its No security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 5 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information Yes Yes 1 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect Yes Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 97,000 462,864 Number of individuals 5,439,000 0 Source: Doing Business database. Doing Business 2014 Czech Republic 59 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Czech Republic 60 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- index (figure 7.1). While the indicator does not dealing in Czech Republic? The economy has a score measure all aspects related to the protection of of 5.0 on the strength of investor protection index, minority investors, a higher ranking does indicate that with a higher score indicating stronger protections an economy’s regulations offer stronger investor (see the summary of scoring at the end of this chapter protections against self-dealing in the areas measured. for details). Globally, Czech Republic stands at 98 in the ranking of 189 economies on the strength of investor protection Figure 7.1 How Czech Republic and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Czech Republic 61 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Czech Republic protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Czech Republic over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 95 98 Extent of disclosure 2 2 2 2 2 2 2 2 2 index (0-10) Extent of director 5 5 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 8 8 8 8 8 8 8 8 8 suits index (0-10) Strength of investor protection index (0- 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Czech Republic 62 PROTECTING INVESTORS One way to put an economy’s scores on the protecting and shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for Czech Republic in 2013 Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Czech Republic 63 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Czech Republic 64 PROTECTING INVESTORS The scores recorded over time for Czech Republic on changes over time in the regional average score on the strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Czech Republic 65 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Czech Republic (table 7.2)? Table 7.2 How has Czech Republic strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 66 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for are assigned to each based on a range of conditions Czech Republic are based on detailed information relating to disclosure, director liability and shareholder collected through a survey of corporate and securities suits in a standard case study transaction (see the data lawyers about securities regulations, company laws notes at the end of this chapter). The summary below and court rules of evidence and procedure. To shows the details underlying the scores for Czech construct the extent of disclosure, extent of director Republic. liability and ease of shareholder suits indices, scores Summary of scoring for the protecting investors indicators in Czech Republic OECD high OECD high income Indicator Czech Republic income average average Extent of disclosure index (0-10) 2 7 Extent of director liability index (0-10) 5 5 Ease of shareholder suits index (0-10) 8 7 Strength of investor protection index (0-10) 5.0 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 2 What corporate body provides legally sufficient Shareholders meeting and Mr. James 1 approval for the transaction? is allowed to vote Whether disclosure of the conflict of interest by Mr. 0 No disclosure obligation James to the board of directors is required? Whether immediate disclosure of the transaction to 0 No disclosure obligation the public and/or shareholders is required? Whether disclosure of the transaction in published 1 Disclosure on the transaction only periodic filings (annual reports) is required? Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for Liable for negligence or influencing the damage that the Buyer-Seller transaction causes 1 the approval of the transaction to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Doing Business 2014 Czech Republic 67 Score Score description Whether a court can void the transaction upon a Not possible or only in case of Seller's 0 successful claim by a shareholder plaintiff? fraud or bad faith Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 1 Yes against Mr. James? Ease of shareholder suits index (0-10) 8 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that is relevant to the 3 the defendant and witnesses during trial? subject matter of the claim Whether the plaintiff can request categories of documents from the defendant without identifying 1 Yes specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 5.0 Source: Doing Business database. Doing Business 2014 Czech Republic 68 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 Czech Republic 69 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Czech Republic stands at 122 in the ranking taxes in Czech Republic—and how much do firms pay of 189 economies on the ease of paying taxes (figure in taxes? On average, firms make 8 tax payments a 8.1). The rankings for comparator economies and the year, spend 413 hours a year filing, preparing and regional average ranking provide other useful paying taxes and pay total taxes amounting to 48.1% information for assessing the tax compliance burden of profit (see the summary at the end of this chapter for businesses in Czech Republic. for details). Figure 8.1 How Czech Republic and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Czech Republic 70 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Czech Republic is keeping required to prepare and file taxes (figure 8.2) help up—and where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Czech Republic 71 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable ra nkings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Czech Republic 72 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Czech Republic (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Czech Republic made paying taxes easier—or not? By Doing Business report year DB year Reform Corporate income tax rate reduced from 24% to 21% in 2008 DB2009 (and 20% in 2009 and 19% in 2010). Czech Republic has made paying taxes easier with mandatory DB2010 electronic filing for all taxes, a single tax institution and unified filing. The Czech Republic simplified its labor tax processes and DB2011 reduced employer contribution rates for social security. The Czech Republic revised its tax legislation to simplify DB2012 provisions relating to administrative procedures and relationships between tax authorities and taxpayers. The Czech Republic made paying taxes faster for companies by DB2013 promoting the use of electronic facilities. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 73 PAYING TAXES What are the details? The indicators reported here for Czech Republic are LOCATION OF STANDARDIZED COMPANY based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see City: Prague the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Czech Republic OECD high income OECD high income Indicator Czech Republic average average Payments (number per year) 8 12 Time (hours per year) 413 175 Profit tax (%) 7.7 16.1 Labor tax and contributions (%) 38.4 23.1 Other taxes (%) 2.0 2.0 Total tax rate (% profit) 48.1 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Social security gross 1 online filing 217 21.5% 24.3 contributions salaries gross Health Insurance 1 online filing 0 9% 10.2 salaries taxable Corporate income tax 1 online filing 94 19% 7.7 profit Doing Business 2014 Czech Republic 74 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate gross Sickness insurance 0 paid jointly 0 2.3% 2.6 salaries Property transfer tax 1 0 3% sale price 1.8 Unemployment gross 0 paid jointly 0 1.2% 1.4 contribution salaries depending Road tax 1 online filing 0 fee scale 0.1 on type of vehicle fee scale and scheme property Real estate tax 1 0 0 with area coefficients value not Value added tax (VAT) 1 online filing 102 20% 0 added included included small Fuel tax 1 0 into the 0 amount fuel price Totals 8 413 48.1 Source: Doing Business database. Doing Business 2014 Czech Republic 75 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Czech Republic 76 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Czech Globally, Czech Republic stands at 68 in the ranking of Republic? According to data collected by Doing 189 economies on the ease of trading across borders Business, exporting a standard container of goods (figure 9.1). The rankings for comparator economies requires 4 documents, takes 17 days and costs $1215. and the regional average ranking provide other useful Importing the same container of goods requires 6 information for assessing how easy it is for a business documents, takes 17 days and costs $1190 (see the in Czech Republic to export and import goods. summary of procedures and documents at the end of this chapter for details). Figure 9.1 How Czech Republic and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Czech Republic 77 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Czech Republic is keeping up—and where it is falling export or import (figure 9.2) help show what is behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Czech Republic 78 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Czech Republic 79 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Czech Republic 80 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Czech Republic (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Czech Republic made trading across borders easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. The Czech Republic reduced the time to export and import by DB2013 allowing electronic submission of customs declarations and other documents. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 81 TRADING ACROSS BORDERS What are the details? The indicators reported here for Czech Republic are LOCATION OF STANDARDIZED COMPANY based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Prague the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Czech Republic OECD high income OECD high income Indicator Czech Republic average average Documents to export (number) 4 4 Time to export (days) 17 11 Cost to export (US$ per container) 1,215 1,070 Documents to import (number) 6 4 Time to import (days) 17 10 Cost to import (US$ per container) 1,190 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 9 165 Customs clearance and technical control 1 55 Ports and terminal handling 3 285 Inland transportation and handling 4 710 Totals 17 1,215 Procedures to import Time (days) Cost (US$) Documents preparation 8 140 Doing Business 2014 Czech Republic 82 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 1 55 Ports and terminal handling 2 285 Inland transportation and handling 6 710 Totals 17 1,190 Documents to export Documents to import Bill of Lading Bill of lading Commercial invoice Cargo release order Customs export declaration Commercial invoice Packing list Customs import declaration Source: Doing Business database. Customs transit document (T1) Packing list Doing Business 2014 Czech Republic 83 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Czech Republic 84 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Czech Republic stands at 75 in the ranking of dispute through the courts in Czech Republic? 189 economies on the ease of enforcing contracts According to data collected by Doing Business, (figure 10.1). The rankings for comparator economies contract enforcement takes 611 days, costs 33.0% of and the regional average ranking provide other useful the value of the claim and requires 27 procedures (see benchmarks for assessing the efficiency of contract the summary at the end of this chapter for details). enforcement in Czech Republic. Figure 10.1 How Czech Republic and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Czech Republic 85 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Czech Republic is keeping to enforce a contract through the courts (figure 10.2) up—and where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Czech Republic 86 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Czech Republic 87 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Czech Republic (table introducing new technology. Lower-income economies 10.1)? often work on reducing backlogs by introducing Table 10.1 How has Czech Republic made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. The Czech Republic made enforcing contracts easier by DB2014 simplifying and speeding up the proceedings for the execution and enforcement of judgments. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 88 ENFORCING CONTRACTS What are the details? The indicators reported here for Czech Republic COURT NAME are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: Prague chapter on what the indicators cover). These procedures, and the time and cost of completing Claim Value LCU: 673304 them, are identified through study of the codes of civil procedure and other court regulations, as well Court Name: Prague Municipal Court as through surveys completed by local litigation lawyers (and, in a quarter of the economies The procedures for resolving a commercial lawsuit, and covered by Doing Business, by judges as well). the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Czech Republic—and the time and cost OECD high income OECD high income Indicator Czech Republic average average Time (days) 611 529 529 Filing and service 88 Trial and judgment 410 Enforcement of judgment 113 Cost (% of claim) 33.0 21.0 21.0 Attorney cost (% of claim) 13.1 Court cost (% of claim) 4.9 Enforcement Cost (% of claim) 15.0 Procedures (number) 27 31 31 Number of procedures (without bonus points) 28 Electronic filing of court cases -1 Total number of procedures (including bonus 27 points) Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Czech Republic 89 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally * or in writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee . Registration of court case: The court administration registers the lawsuit or court case. This includes 3 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to 4 Defendant is successful in the majority of cases. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 5 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 6 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and 7 transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Doing Business 2014 Czech Republic 90 No. Procedure Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 8 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court * delivers his or her expert report to the court. (see assumption 6-b of this case) * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 9 hearing or trial. (see assumption 6-a) Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 10 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. 11 Closing of the evidence period: The court makes the formal decision to close the evidence period. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 12 Judgment date: The judge sets a date for delivery of the judgment. 13 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 14 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 15 judgment. 16 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 17 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 18 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 19 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 20 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the 21 judgment. Doing Business 2014 Czech Republic 91 No. Procedure Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 22 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a (private) bailiff. Plaintiff’s identification of Defendant's assets for attachment: Plaintiff identifies Defendant's assets for 23 attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 24 assets). Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 25 newspapers. 26 Sale through public auction: The Defendant’s movable property is sold at public auction. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 27 Plaintiff had advanced previously. 28 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Czech Republic 92 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Czech Republic 93 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses concern. The average recovery rate is 65.0 cents on the characterize the top-performing economies. How dollar. efficient are insolvency proceedings in Czech Republic? Globally, Czech Republic stands at 29 in the ranking of According to data collected by Doing Business, 189 economies on the ease of resolving insolvency resolving insolvency takes 2.1 years on average and (figure 11.1). The rankings for comparator economies costs 17% of the debtor’s estate, with the most likely and the regional average ranking provide other useful outcome being that the company will be sold as going benchmarks for assessing the efficiency of insolvency proceedings in Czech Republic. Figure 11.1 How Czech Republic and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Czech Republic 94 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Czech Republic is keeping up—and where or on the recovery rate (figure 11.2) help show what is it is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Czech Republic 95 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Czech Republic 96 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Czech Republic (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Czech Republic made resolving insolvency easier—or not? By Doing Business report year DB year Reform Czech Republic passed an Insolvency Act. The law introduces reorganization as the preferred method for resolving DB2009 insolvency, mandates stricter deadlines, establishes an electronic insolvency register and sets new qualification standards for trustees. DB2010 No reform as measured by Doing Business. The Czech Republic made it easier to deal with insolvency by introducing further legal amendments to restrict setoffs in DB2011 insolvency cases and suspending for some insolvent debtors the obligation to file for bankruptcy. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Czech Republic 97 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Czech Republic 98 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Czech other things, the minimum wage for a 19-year-old Republic (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Czech Republic 99 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Czech Republic adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Czech Republic make in employing workers in 2013? DB year Reform Czech Republic amended its Labor Code allowing the DB2009 performance of more overtime work per week. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. The Czech Republic increased the maximum duration of fixed- term contracts and reduced the severance pay applicable in DB2013 cases of redundancy dismissals of employees with one year of service. The Czech Republic abolished the minimum wage for young DB2014 workers. Source: Doing Business database. Doing Business 2014 Czech Republic 100 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Czech Republic are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No 36 months - Sec. 39 of Act No. 262/2006 Maximum length of a single fixed-term contract (months) Coll., Labor Code, as amended. Maximum length of fixed-term contracts, including renewals (months) 108 Minimum wage for a 19-year old worker or an apprentice (US$/month) 428.4 Ratio of minimum wage to value added per worker 0.20 Source: Doing Business database. Doing Business 2014 Czech Republic 101 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data Standard workday in manufacturing (hours) 8 hours 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 10% operations Premium for work on weekly rest day (% of hourly pay) in case of 10% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 20.0 Paid annual leave for a worker with 5 years of tenure (in working days) 20.0 Paid annual leave for a worker with 10 years of tenure (in working days) 20.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 20.0 working days) Source: Doing Business database. Doing Business 2014 Czech Republic 102 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 Czech Republic 103 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 8.7 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 8.7 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 8.7 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 13.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 13.0 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 11.6 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Czech Republic 104 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Czech Republic 105 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Czech Republic 106 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Czech Republic 107 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Czech Republic 108 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Czech Republic 110 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Czech Republic 111